ELECTRIC COST OF SERVICE AND RATE DESIGN REPORT Independence, MO 0703.003 May 29, 2015 Revised July 22, 2015 Consultants and Engineers EXECUTIVE SUMMARY 2014-2015 ELECTRIC COST OF SERVICE AND RATE DESIGN REPORT Prepared for CITY OF INDEPENDENCE, MISSOURI POWER & LIGHT DEPARTMENT May 29, 2015 Revised July 22, 2015 Consultants and Engineers May 29, 2015 Mr. E. Leon Daggett Power & Light Director City of Independence, Missouri Power & Light Department 21500 E. Truman Road Independence, MO 64051-0519 RE: City of Independence, Missouri Power & Light Department 2014-2015 Electric Cost of Service and Rate Design Report – Executive Summary Dear Mr. Daggett: We are pleased to present the Executive Summary of our report on the 2014-2015 Electric Cost of Service and Rate Design Study (Rate Study) for the City of Independence, Missouri (City). The purpose of the Rate Study is to evaluate the financial position of the City’s Power & Light Department (IPL) for the five year projected period FY2015-16 through FY2019-20 and to provide the following: • A rate plan for the projected period • Goals and objectives for a rate design strategy • A detailed cost of service analysis • Proposed restructured and additional rates for implementation October 1, 2015 We appreciate the opportunity to provide consulting services to the City and IPL and look forward to discussing this report with you. Sincerely, Joseph A. Herz Vice President 100 East Main Cross Street ■ Suite 300 ■ Findlay, OH 45840-4889 Phone: 419-422-4812 ■ Email: [email protected] ■ Fax: 419-423-5076 FINAL EXECUTIVE SUMMARY 2014-2015 ELECTRIC COST OF SERVICE AND RATE DESIGN REPORT CITY OF INDEPENDENCE, MISSOURI POWER & LIGHT DEPARTMENT T ABLE OF C ONTENTS Executive Summary ........................................................................................................................ 1 Introduction ..................................................................................................................................... 1 Findings on IPL Financial Position................................................................................................. 2 Findings on Cost of Service Analysis ............................................................................................. 4 Recommended Rate Changes ......................................................................................................... 7 Goals and Objectives .................................................................................................................. 8 Residential ................................................................................................................................ 10 General Service ......................................................................................................................... 11 Large General Service .............................................................................................................. 12 Large Power .............................................................................................................................. 12 General Service Space Heating (Frozen GSSH-1) ................................................................... 12 Large Power (Frozen LP-2) ...................................................................................................... 12 Special Contract Large Interruptible Industrial (Frozen SCIS-1) ............................................. 13 Power Cost Adjustment Schedule PCA-1 ................................................................................ 13 Regulatory and Environmental Compliance Rider Schedule REC-1 ....................................... 13 Community Solar ...................................................................................................................... 14 Partial Requirements Rate ........................................................................................................ 14 Bill Comparisons .......................................................................................................................... 15 Residential ................................................................................................................................ 15 General Service ......................................................................................................................... 15 Large General Service .............................................................................................................. 22 Large Power .............................................................................................................................. 22 Recommendations ......................................................................................................................... 27 List of Tables and Graphs Table ES-1 Projected Operating Results – IPL Pro Forma Summary with Projected Rate Increases Graph ES-1 Functionalization of Test Year Revenue Requirements Table ES-2 Comparison of Revenue Distribution – Existing Rates vs Cost of Service Table ES-3 Comparison of Revenue Distribution – Existing Rates vs Proposed Rates Table ES-4 Revenue Reduction for Phase-In of Residential and General Service Customer Charges Table ES-5 Residential Rate Monthly Bill Comparison – IPL Existing vs IPL Proposed Restructured – Typical Use Customer i Table ES-6 Residential Rate Monthly Bill Comparison – IPL Existing vs IPL Proposed Restructured – Low Use Customer Table ES-7 Residential Rate Comparison – IPL Proposed Restructured vs Neighboring Utilities Estimated Future – Typical Use Customer Table ES-8 Residential Rate Comparison – IPL Proposed Restructured vs Neighboring Utilities Estimated Future – Low Use Customer Table ES-9 General Service Rate Monthly Bill Comparison – IPL Existing vs IPL Proposed Restructured – Typical Use Customer Table ES-10 General Service Rate Monthly Bill Comparison – IPL Proposed Restructured vs Neighboring Utilities Estimated Future – Typical Use Customer Table ES-11 Large General Service Rate Monthly Bill Comparison – IPL Existing vs IPL Proposed Restructured – Representative Customer Table ES-12 Large General Service Rate Monthly Bill Comparison – IPL Proposed Restructured vs Neighboring Utilities Estimated Future – Representative Customer Table ES-13 Large Power Rate Monthly Bill Comparison – IPL Existing vs IPL Proposed Restructured – Representative Customer Table ES-14 Large Power Rate Comparison – IPL Proposed Restructured vs Neighboring Utilities Estimated Future – Representative Customer ii EXECUTIVE SUMMARY INTRODUCTION The City of Independence, Missouri (City) owns and operates, through its Power and Light Department (IPL), electric generation, transmission and distribution facilities to serve the electricity needs of its customers. Typical of similarly situated municipally owned electric systems, the City is facing the challenges of pursuing and implementing renewable energy options, transitioning to new base load resources that are more energy efficient but higher cost, and maintaining and improving an aging infrastructure, while providing low-cost, reliable electric service. These challenges also include compliance with new and changing environmental requirements and regulations affecting the future operation of IPL’s resources and maintaining financial stability during a period of rising costs for fuel, equipment, and material. The City retained Sawvel and Associates, Inc. (Sawvel) to prepare a 2014-2015 Electric Cost of Service and Rate Design Study (Rate Study) for IPL. The scope of services for this Rate Study was comprised of the following: • Task 1 - Five Year Financial Forecast and Rate Design Strategy o Understanding overall financial requirements and needed base rate revenue adjustments, if any. o Developing a rate design strategy to meet identified goals and objectives. • Task 2 - Customer Class Cost of Service Analysis • Task 3 - Rate Design and Implementation of New Restructured Rates Effective October 1, 2015 o Considering the impact of any restructured rates to IPL customers. o Developing new rates that address identified goals and objectives. o Comparing IPL’s current and proposed rates to comparable rates of neighboring utilities. The Rate Study report is comprised of the following: • Section 1 – Introduction which provides the scope of services provided by Sawvel for this Rate Study. 1 • Section 2 – Rate Plan which provides the evaluation of IPL’s financial position for the five year projected period FY2015-16 through FY2019-20 and provides the goals and objectives for rate design strategy and recommendations for a rate plan. • Section 3 – Class Cost of Service Analysis which provides the detailed class cost of service analysis. • Section 4 – Rate Design which provides a proposed rate schedule of restructured and new rates to meet IPL’s revenue requirements and rate design strategy goals and objectives for implementation October 1, 2015. • Section 5 – Bill Comparisons which provides a comparison of IPL’s existing rates to proposed rates and neighboring utility rates. • Section 6 – Recommendations which provides Sawvel’s recommendations. The remaining sections of this Executive Summary provide a summary of Sawvel’s (1) findings regarding IPL’s financial position and cost of service analysis, and (2) recommendations regarding changes to IPL’s rates to meet recommended goals and objectives. FINDINGS ON IPL FINANCIAL POSITION By developing a rate plan, the City is exercising control of its future to maintain financial integrity and a favorable